Resumo
4. Head of the Household: the application of a Civil Law concept
The three case-laws explained in the previous point show the implications of the applicability of the corporate veil doctrine.
The corporate veil doctrine allows companies to evade liability by conducting their business through their subsidiaries but without having any legal consequences if a damage occurs, because according to the law they are legally separated.
The Adams v Cape plc., the Vedanta and the Four Nigerian Farmers and Milieudefensie v. Shell case-laws also showed how ineffective and inconsistent piercing the corporate veil theories are. Because they are exceptional measures, only the Courts can decide to apply them.
In addition to this discretionary power, each Court decision shows that there is not a consensus regarding the criteria to apply the duty of care, which leads to conclude that piercing the corporate veil theories are not the solution to the problems that have been presented until now.
It is necessary to harmonize the law in order to get objective justice, reduce the length of these cases and allow Courts to apply the same legal standards in every environmental and Human Rights abuses by corporations’ cases, regardless of the place where the claims are brought to (Home State or Host State).
In conclusion, although progress has been made like in the case of Four Nigerian Farmers and Milieudefensie v. Shell case-law, where a parent company was directly liable for breaching its duty of care to claimants of a foreign country, still it is clear that corporate activities need to be regulated in a more effective way.
141XU, Alison — Four Farmersʼ Expedition..., P. 60.
142Milieudefensie (Friends of the Earth International) — Justice at last...
Head of the Household: the application of a Civil Law concept
Fortunately, in the past few years some legal improvements were made with State laws and, more recently, the proposed environmental and Human Rights due diligence Directive.
In this new chapter these initiatives will be explained as well as a new theory, in which a Civil Law concept can be used to create a due diligence obligation for corporations, in order for the EU Directive to be effective and have a different impact on corporations’
behaviors.
4.1 The French Duty of Vigilance Law: history and content
In the aftermaths of tragic events143 provoked by corporate’s negligence towards Human Rights and the Environment, it became apparent that something needed to change in order to make parent companies accountable for their subsidiaries.
As mentioned before, there are several issues concerning the lack of regulation in Host States, which leaves the Home States the responsibility of fulfilling this gap in order to apply the UNGPs and protect Human Rights and the Environment.
The French Law of Vigilance144 and the Swiss Initiative are examples of States and other organization’s efforts to do this.
The Duty of Vigilance Law145 was adopted in 21 of February 2017 and is the result of a collaboration between “civil society organizations, trade unions, academics, lawyers and Members of Parliament”146.
143CLERC, Christophe — The French ‘Duty of Vigilance’ Law: Lessons for an EU Directive on Due Diligence in Multinational Supply Chains [online]. ETUI Research Paper - Policy Brief (European Economic, Employment and Social Policy). Vol. 1, January 13, 2021. [Accessed on June 14, 2022]. P. 1.
Available in: <https://ssrn.com/abstract=3765288>.
144BRIGHT, Claire — Creating a legislative level playing field in business and human rights at the European level: is the French duty of vigilance law the way forward? [online]. EUI Working Paper MWP.
November 16, 2018. Last revised in February 14, 2020. [Accessed on June 14, 2022]. PP. 1-10. PP. 1, 3.
Available in: <http://hdl.handle.net/1814/65957>. ISSN: 1830-7728.
145For better understanding of the law see: NASSE, Laura — The French Duty of Vigilance Law in Comparison with the Proposed German Due Diligence Act – Similarities and Differences [online]. Nova Centre on Business, Human Rights and the Environment Blog. May 26, 2021. [Accessed on June 14, 2022].
Available in: <https://novabhre.novalaw.unl.pt/french-duty-vigilance-law-german-due-diligence-act/>.
146BRIGHT, Claire — Creating a legislative level playing field…, P. 4.
Holding Parent Companies accountable for the Human Rights and Environmental harms caused by their Subsidiaries: the role of the Civil Law concept of the “Head of the Household”
This law combines soft and hard law mechanisms147 by setting the goals that companies should achieve but leaving space for them to decide the process that leads to that result.
The law has 4 articles and describes 3 obligations. The first one introduces an article to the French Commercial Code which contains an ex-ante prevention plan148.
According to article 1149, French corporations (with certain characteristics) have to create, disclose and implement a Vigilance Plan in the parent company its subsidiaries and/or companies that are controlled as well as the activities of subcontractors and suppliers with whom the company maintains an established business relationship (the supply chain)150. One of the characteristics of this law is that it only applies to a company that fulfills the following requirements151:
- Be incorporated or registered in France for two consecutive fiscal years;
- Employ at least 5,000 people itself and through its French subsidiaries;
- Or employ at least 10,000 people itself and through its French and foreigner subsidiaries.
The second obligation for the parent company is to effectively implement the plan which can be achieved by following five measures152 that can be compared to the due
147VERCHER-CHAPTAL, Corinne — Limitations and perspectives of responsible management of Global Value Chains: From codes of conduct to the French law on the duty of vigilance [online]. EURAM 2018.
June 20, 2018. [Accessed on June 15, 2022]. Reykjavik, Iceland. P. 13. Available in:
<https://halshs.archives-ouvertes.fr/halshs-02141407>.
Also see: LAVITE, Cannelle — The French Loi de Vigilance: Prospects and Limitations of a Pioneer Mandatory Corporate Due Diligence [online]. Verfassungs Blog, on matters constitutional. June 16, 2020.
[Accessed on June 15, 2022]. Available in: <https://verfassungsblog.de/the-french-loi-de-vigilance-prospects-and-limitations-of-a-pioneer-mandatory-corporate-due-diligence/>.
148BRIGHT, Claire — Creating a legislative level playing field…, P. 5.
Ex-ante means before something happens. It is a prevention plan, that has the purpose of avoiding Human Rights harms.
149French Law of Vigilance (translation), 2017, French Parliament, Article 1, paragraph 3.
150SAVOUREY, Elsa; BRABANT, Stéphane — The French Law on the Duty of Vigilance: Theoretical and Practical Challenges Since its Adoption [online]. Business and Human Rights Journal Vol. 6:1, 2021.
[Accessed on June 15, 2022]. PP. 141-152. P. 144. Available in: < https://doi.org/10.1017/bhj.2020.30>.
151COSSART, Sandra; CHAPLIER, Jérôme; BEAU DE LOMENIE, Tiphaine — The French Law on Duty of Care: A Historic Step Towards Making Globalization Work for All [online]. Business and Human Rights Journal. Vol. 2:2, July 2017. [Accessed on June 16, 2022]. PP. 317-323. P. 320. Available in:
<https://doi.org/10.1017/bhj.2017.14>.
152French Law of Vigilance (translation), 2017, French Parliament, Article 1, paragraph 5.
Head of the Household: the application of a Civil Law concept
diligence153 in the UNGPs, because they also include identify, assess, mitigate and monitoring the plan in the supply chain.
The third obligation concerns the transparency of the company with the public. According to the law154 the parent company should make its vigilance plan public as well as a report about the effective implementation of that plan.
In the law the parent company is accountable for what controls directly or indirectly and for its commercial relationships155, which is justified by the fact that it has dominance156. Besides transparency, the law tries to achieve cooperation157 by giving stakeholders the right to monitor the implementation and creation of the vigilance plan.
The French Law also contains an enforcement mechanism in article 1, paragraph 8, article 2, that states that if a company fails to comply with the law, it is liable. After this a formal notice can be sent to the company to comply with the law within three months. If this does not happen, “any person with legitimate interest in this regard”158 can go to Court and ask for compensation.
4.1.1 Issues with the French Law: space for improvement
Although the impact of the French Duty of Vigilance Law in the world as one of the first State laws targeting corporations and the protection of Human Rights and the Environment is undeniable, it is also impossible to disregard its weaknesses.
Firstly, the scope of this law restricts the application of the law to companies with a certain size which, doesn’t solve the access to justice issue159.
With the constant transformation of companies and corporate groups160, this implies that the law doesn’t keep up with these evolutions.
As mentioned before, the law applies to “(…) other controlled companies and to the activities of subcontractors and suppliers with whom the company maintains an established business relationship”.
153Due diligence or HRDD is only a mean by which the respect of the UNGPs can be achieve.
154French Law of Vigilance (translation), 2017, French Parliament, Article 1, paragraph 6.
155COSSART, Sandra; CHAPLIER, Jérôme; BEAU DE LOMENIE, Tiphaine — The French Law on Duty of Care…, P. 320.
156VERCHER-CHAPTAL, Corinne — Limitations and perspectives..., P. 14.
157French Law of Vigilance (translation), 2017, French Parliament, Article 1, paragraph 5.
158Idem.
159For better understanding of the law see: NASSE, Laura — The French Duty of Vigilance…
160SAVOUREY, Elsa; BRABANT, Stéphane — The French Law on the Duty of Vigilance... P. 142.
Holding Parent Companies accountable for the Human Rights and Environmental harms caused by their Subsidiaries: the role of the Civil Law concept of the “Head of the Household”
The definition of controlled companies161 and established business relationship isn’t given by the French law but by the Code of Commerce.
Both definitions do not clarify the extent of the obligations or the exemption situations for the controlled companies or for those that have an established business relationship with the parent company.
Besides, the French Law contains an obligation of result which means that as long as the companies create and implement a vigilance plan they are not liable. This can lead to negligence by companies or to a type of doing “the bare minimum” behavior by companies which implicates that the protection of Human Rights and the Environment is not a priority.
The last issue within the law is that the burden of proof still remains on the claimant.
4.2 The Swiss Responsible Business Initiative: history and content
After the UNGPs were created in 9 December 2016162, the Swiss government created the Swiss Action Plan on Business and Human Rights in order to implement the principles.
However, the Plan did not include any measures with mandatory due diligence163. That was only done when the Swiss Responsible Business Initiative was introduced.
The initiative was conducted at the same time as the Action Plan164. It was launched by civil society organizations in Switzerland and aimed to do the same as the French Duty of Vigilance Law.
The RBI intended to introduce165 a modification, with article 101a, to the Swiss Constitution166 which aimed at creating a specific provision about businesses responsibility for Human Rights and the Environment.
161Code of Commerce, Article L233-3.
162BUENO, Nicolas — The Swiss Responsible Business Initiative and its counter-proposal: Texts and current developments [online]. Business and Human Rights Blog (Originally posted here). 2018. [Accessed on June 16, 2022]. Posted at the Zurich Open Repository, University of Zurich. Available in:
<https://www.cambridge.org/core/blog/2018/12/07/the-swiss-responsible-business-initiative-and-its-counter-proposal-texts-and-current-developments/>.
163Idem.
164Idem.
165The RBI was later rejected.
166BUENO, Nicolas; BRIGHT, Claire — Implementing Human Rights Due Diligence Through Corporate Civil Liability [online]. International & Comparative Law Quarterly, 2020. November 2, 2020. [Accessed on June 17, 2022]. PP. 1-27. P. 13. Available in: <http://dx.doi.org/10.2139/ssrn.3689241>.
Head of the Household: the application of a Civil Law concept
Article 101a stated that “companies must respect internationally recognized Human Rights and international environmental standards, also abroad; they must ensure that Human Rights and environmental standards are also respected by companies under their control”167.
In other words, parent companies must protect and respect the Human Rights and environmental standards that are present in international agreements and conventions like the International Covenant on Civil and Political Rights or the Montreal Protocol for the protection of the ozone layer, for example.
Like it was showed in the Milieudefensie et al. v Royal Dutch Shell case-law168, although companies are not a part of the creation and ratification of such international agreements, they are duty bearers.
The RBI also sets out a due diligence obligation169 which is the same due diligence present in the UNGPs and other relevant international soft law standards170. However, the provision includes an exception for small and medium companies that might not be able, in certain circumstances, to fulfill their obligation like bigger companies would.
This can be justified by the fact that the companies with a smaller size have a lower probability of exercise a business conduct that will harm Human Rights and the Environment. In addition, most of them do not possess the same means as multinationals to avoid or stop these damages.
167The Swiss Business Initiative, 2017. Art. 101a (a.).
168See: Milieudefensie et al. v Royal Dutch Shell, The Hague District Court, Netherlands, Judgment of 26 May 2021.
The Milieudefensie et al. v Royal Dutch Shell case is a climate litigation, in which the same arguments, usually used in cases involving States, were used against a company.
The Court, in this case, adopted a broad approach to the duty of care, which means that international instruments like the UNGPs were used in order to determine if there was a breach of duty.
This decision was an historical moment for BHRE, because it was the first time that a Court directly stated that, although corporations are not directly mentioned in international conventions and treaties about climate change and other environmental issues, they too are environmental duty bearers.
169The Swiss Business Initiative, 2017, Art. 101a (b.).
170JENTSCH, Valentin — Corporate social responsibility and the law: international standards, regulatory theory and the Swiss responsible business initiative [online]. EUI (European University Institute), MWP.
Working paper. May, 2018. [Accessed on June 20, 2022]. PP. 1-17. P. 14. Available in:
<http://hdl.handle.net/1814/59084>. ISSN: 1830-7728.
Holding Parent Companies accountable for the Human Rights and Environmental harms caused by their Subsidiaries: the role of the Civil Law concept of the “Head of the Household”
Point c. of article 101a contains specific liability for parent companies or the companies in control: they are liable for their own conduct and their subsidiaries and other controlled companies in Switzerland and abroad.
There is a due diligence defence clause. The parent company might escape liability if it can prove that it “took all due care”171.
In other words, there is a reverse of the burden of proof because it is the corporation that has to prove that it fulfilled its due diligence duty and the damage still occurred.
The RBI contains a presumption of liability of the parent company - even without any proof the parent company is presumed liable.
In June 2018, the text of the counter-proposal was presented. Although they have many similarities, the counter-proposal included some changes.
In this counter-proposal there is a responsibility of the board director’s clause, in the sense that they are the ones that have to ensure that the parent company and controlled companies protect and respect Human Rights and the Environment172;
The scope of the counter-proposal is also different from the RBI, because the companies to whom the counter-proposal applies (the parent company and the controlled companies) need to “exceed two of the following values in two consecutive financial years:
- a balance sheet total of 49 million Swiss francs;
- sales of 80 million Swiss francs;
- 500 full-time positions on an annual average.”173
So, the scope of the counter-proposal is stricter and more restrict than the original proposal.
171The Swiss Business Initiative, 2017, Art. 101a (c.).
172Proposal by the Legal Affairs Committee of the Swiss National Council Responsible Business Initiative:
indirect counter-proposal.
Art. 716a bis CO (new) 2a Compliance with the provisions for the protection of human rights and the environment also abroad (1).
173Proposal by the Legal Affairs Committee of the Swiss National Council Responsible Business Initiative:
indirect counter-proposal.
Art. 716a bis CO (new) 2a Compliance with the provisions for the protection of human rights and the environment also abroad (3).
Head of the Household: the application of a Civil Law concept
Moreover, the liability clause174 in article 55(1bis)175 of the counter-proposal, like in the proposal, contains a provision about liability dictating that a parent company is liable for its own actions and its controlled companies’ actions if it fails to comply with its due diligence obligation.
However, the controlled companies are only the ones that are “actually controlled by them (the parent companies) in the performance of their official or business activities”176, which means that if a controlled company isn’t performing an action in line with the business activities, the parent company isn’t liable177.
Additionally, the damages covered by this liability provision are only Human Rights and environmental damages that cause bodily harms and damage property.
Once again, the counter-proposal restricts the scope of protection of Human Rights and the Environment.
4.2.1 The application of the RBI counter-proposal: issues and space for improvement
In November 2020 a national referendum, in Switzerland, took place leading to the rejection of the RBI178.
Therefore, its counter-proposal will be applied and the Swiss Code of Obligations, the Swiss Civil Code and the Swiss Federal Code on Private International Law will have new norms179.
174PALOMBO, Dalia — The Duty of Care of the Parent Company…, PP. 277, 278.
175Proposal by the Legal Affairs Committee of the Swiss National Council Responsible Business Initiative:
indirect counter-proposal.
Art. 55 CO C. Liability of employers 1bis (new).
176Proposal by the Legal Affairs Committee of the Swiss National Council Responsible Business Initiative:
indirect counter-proposal.
Art. 55 CO C. Liability of employers 1bis (new).
177JENTSCH, Valentin — Corporate social responsibility and the law…, P. 16.
178WETTSTEIN, Florian — Betting on the Wrong (Trojan) Horse: CSR and the Implementation of the UN Guiding Principles on Business and Human Rights [online]. Business and Human Rights Journal. Vol: 6:2, 2021. [Accessed on June 20, 2022]. PP. 312-325. P. 320. Available in: <doi:10.1017/bhj.2021.21>.
179CALSTER, Geert [et al.] — Options for Mandatory Human Rights Due Diligence in Belgium [online].
Leuven Centre for Global Governance Studies. 2020. [Accessed on June 21, 2022]. PP. 8-121. P. 39.
Available in: <https://ghum.kuleuven.be/ggs/publications/research_reports/options-for-mandatory-human-rights-due-diligence.pdf>. ISBN 9789082643138.
Holding Parent Companies accountable for the Human Rights and Environmental harms caused by their Subsidiaries: the role of the Civil Law concept of the “Head of the Household”
The main focus of the counter-proposal is transparency, non-financial duties, in regards to Human Rights and the Environment, and anticorruption measures180.
Although it is an important step to regulate businesses conduct, the counter-proposal has a lot of issues that does not help to improve international legislation181.
Once again, the scope182 of the counter-proposal is different from the RBI. In it, the due diligence obligation, which is an obligation of means183, is only applied to large companies with a certain threshold or small companies that deal with specific activities that endanger Human Rights and the Environment184.
180LENZ & STAEHELIN, The world’s Swiss law firm — Counter-Proposal to Responsible Business Initiative: Overview of New Duties for Companies [online]. November, 2020. [Accessed on June 20, 2022].
Available in:
<https://www.lenzstaehelin.com/fileadmin/user_upload/newsflash/201130_Newsletter_Counter_Proposal _EN_Final.pdf>.
See: Logan & Partners, your in-house counsel — Swiss Responsible Business: Parliament’s counter-project. Sustainability [online]. April 14, 2021. [Accessed on June 21, 2022]. Available in:
<https://www.loganpartners.com/swiss-responsible-business-parliaments-counter-project/>.
181VILLIERS, Charlotte — Collective Responsibility and the Limits of Disclosure in Regulating Global Supply Chains [online]. Deakin Law Review. Vol. 23, November 27, 2018. [Accessed on June 21, 2022].
P. 160. Available in: <https://doi.org/10.21153/dlr2018vol23no0art809>.
182GAUKRODGER, David — Business responsibilities and investment treaties [online]. OECD Working Papers on International Investment. OECD Publishing, Paris. February, Vol. 2, 2021. [Accessed on June 21, 2022]. PP. 1- 125. PP. 48, 49. Available in: <https://doi.org/10.1787/4a6f4f17-en>.
183MCKNIGHT, Zoe — Human Rights Due Diligence: Legislative Scan [online]. Canadian Labour Congress. Research Paper #54. August, 2018. [Accessed on June 22, 2022]. PP. 3-52. P. 18. Available in:
<https://canadianlabour.ca/wp-content/uploads/2019/04/053-HRDD-International-Intruments-2018-09-26.pdf>.
184See in regards to the scope of the counter-proposal: DUVANEL, Vanessa Alarcon — The Swiss Responsible Business Initiative Has Been Rejected, but the Government’s Counterproposal Will Likely Enter Into Force: Brief Overview of the New Duties for Companies [online]. JDSUPRA. King & Spalding.
December 10, 2020. [Accessed on June 22, 2022]. Available in: <https://www.jdsupra.com/legalnews/the-swiss-responsible-business-28152/>.
Head of the Household: the application of a Civil Law concept
The counter- proposal imposes “non-financial reporting duties185 on certain Human Rights and environmental, social and employment-related matters”186. In addition to that, the transparency and due diligence duties only concern the conflict of minerals and the prevention of child labor187.
There is also, instead of civil liability, “criminal sanctions and (…) fines in case of non-compliance with the reporting duties or for making false statements”188.
However, in regards to the due diligence obligation, these sanctions are only applied if the damage is to life, personal injury or/and property189.
There is also an exemption possibility190, but only if the parent company can prove that it had no control over its subsidiary when the damage occurred or that it did everything in its power to stop the damage from occur but it still happened191.
185BUENO, Nicolas — Human Rights Due Diligence Legislation in Switzerland: The state-of-play after the Swiss Responsible Business Initiative [online]. Nova Centre on Business, Human Rights and the Environment Blog. February 1, 2021. [Accessed on June 23, 2022]. Available in:
<https://novabhre.novalaw.unl.pt/human-rights-due-diligence-switzerland/ >.
186LENZ & STAEHELIN, The world’s Swiss law firm — Counter-Proposal to Responsible Business Initiative...
187Ibidem.
188DELAUTRE, Guillaume [et al.] — Decent work in a globalized economy: lessons from public and private initiatives [online]. ILO (International Labour Organization). 17 February, 2021. [Accessed on June 23, 2022]. P. 97. Available in:<https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_771481.pdf>. ISBN (pdf): 978-92-2-033720-2.
189GAUKRODGER, David — Business responsibilities…, P. 49.
189MCKNIGHT, Zoe — Human Rights Due Diligence…, PP. 15, 16.
See: BUENO, Nicolas — Human Rights Due Diligence Legislation in Switzerland...
190GAUKRODGER, David — Business responsibilities…, P. 49.
See: DELAUTRE, Guillaume [et al.] — Decent work in a globalized economy..., PP. 96, 97.
Also see: EY, Building a better working world — The Swiss Federal Council intends a swift implementation of the counterproposal to the Responsible Business Initiative [online]. 29 April, 2021. [Accessed on June 24, 2022]. Available in: <https://www.newrealityblog.com/2021/04/29/the-swiss-federal-council-intends-a-swift-implementation-of-the-counterproposal-to-the-responsible-business-initiative/>.
191CALSTER, Geert [et al.] — Options for Mandatory Human Rights..., P. 41.